Insurers have been handed a firm reminder of the value of clearly worded policy conditions following a June 10 decision by the New York Appellate Division, First Department. The court affirmed a ruling in favor of Certain Underwriters at Lloyd’s, finding the insurer was within its rights to deny a coverage claim for a missing diamond due to a lapse in the insured’s security measures.
The case centered on a claim filed by Itzhak Nissanoff Inc., a diamond business based in New York. After reporting the loss of a diamond, Nissanoff sought defense and indemnity under its commercial property policy with Lloyd’s. The insurer declined to provide coverage, citing the policy’s requirement that the premises be protected by a fully operational alarm system.
More specifically, the court examined an “alarm and protection” clause in the policy. It stated that all security systems installed for the protection of the insured property—including burglar alarms and security cameras—must be functional at all times. At the time of the diamond’s disappearance, the cameras were not working. That failure, the court concluded, was enough to void coverage.
The Supreme Court of New York County had previously ruled in Lloyd’s favor, and the appellate court agreed with the findings. The justices found that Nissanoff had breached a warranty in the policy and failed to meet a condition precedent to coverage. This, they said, released Lloyd’s from its obligation to provide a defense or make payment under the policy.
Nissanoff challenged the denial, arguing the insurer had either waived its right to disclaim coverage or had failed to issue its denial in a timely manner. The appellate court was not persuaded. It noted that Lloyd’s had issued a reservation of rights letter early in the process, preserving its ability to later deny the claim. Moreover, the timeliness rules under New York Insurance Law § 3420(d), which require prompt disclaimers, apply only in cases involving bodily injury or death—not to property losses like this one.
From a commercial insurance perspective, the decision reinforces the enforceability of standard risk controls outlined in policies. For insurers, it highlights the importance of clarity in coverage terms, particularly where high-value assets like jewelry are involved. For policyholders, especially those in industries dealing with valuable or portable goods, it sends a clear message: maintaining operational security systems is not just good practice—it’s a contractual obligation.
The case underscores a broader principle in underwriting and claims management. When policies include specific conditions to minimize risk, such as working security systems, courts are prepared to uphold those conditions strictly. The outcome serves as a cautionary tale for insureds who might otherwise overlook routine maintenance of protective systems, and it provides reassurance to insurers that courts will support clear and reasonable policy enforcement.
